The Relevant Principles
92As has been pointed out in a number of cases, the purpose of the Act is to provide a practical mechanism to ensure that contractors receive periodical and prompt progress payments for the work that they do.
93It is not the purpose of the Act to ensure that they are paid immediately for such work: see, for example, Patrick Stevedores Operations No. 2 Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2014] NSWSC 1413, per Ball J, at [27].
94It can also be seen that the Act is not concerned with giving effect to the rights of the parties under the construction contract. Section 32(2) makes tolerably plain that the determination of such rights is left with the courts. The process which the Act provides contemplates an "assessment" by the adjudicator, which assessment may be enforced as if it were a judgment of a court of competent jurisdiction but only insofar as a court has not determined, or does not determine, otherwise. There is no determination, even provisionally, of the actual rights of the parties, and there is no judicial determination of such rights under their construction contract.
95The position was put succinctly by Handley JA in Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2005] NSWCA 49; (2005) 62 NSWLR 385, at [22]:
"[T]he Act confers statutory rights on a builder to receive an interim or progress payment and enables that right to be determined informally, summarily and quickly, and then summarily enforced without prejudice to the common law rights of both parties which can then be determined in the normal manner."
96In Birdon Pty Ltd v Houben Marine Pty Ltd, Keane CJ, at [63], put it this way:
"The provisions of the Security of Payment Act establish the content of a new statutory right created by that Act, including the quantification of the entitlement (ss 9 and 17 - 25), the incidents of the right (s 23), and the enforcement of the right (ss 25 and 32). That is, they define the incidents of the novel right. Critically, the existence and quantum of the new statutory right depends not on the true state of underlying facts as regulated by the charter agreement, but on the assessment of the adjudicator who is not required or authorised to make any findings about those facts: Energetech Australia Pty Ltd v Sides Engineering Pty Ltd [2005] NSWSC 1143; (2005) 226 ALR 362 at [97] and [101]."
97McDougall J, in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190; (2010) 78 NSWLR 393, at [207] - [209], commented:
"The Security of Payment Act operates to alter, in a fundamental way, the incidence of the risk of insolvency during the life of a construction contract. As Keane JA said, of the not dissimilar Queensland statute, the Building and Construction Industry Payments Act 2004 (Qld), in RJ Neller Building P/L v Ainsworth [2008] QCA 397 at [40], the statute 'seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder's ... inability to repay could be expected to eventuate'. It followed, his Honour said, that the risk of inability to repay, in the event of successful action by the other party, must be regarded as one that the legislature has assigned to that other party.
The same is true of the regime established by the Security of Payment Act. Further, the Security of Payment Act operates in a way that has been described as 'rough and ready' or, less kindly, as 'Draconian'. It imposes a mandatory regime regardless of the parties' contract: s 34. It provides extremely abbreviated time frames for the exchange of payment claims, payment schedules, adjudication applications and adjudication responses. It provides a
very limited time for adjudicators to make their decisions on what, experience shows, are often extremely complex claims involving very substantial volumes of documents (see, for example, my decision in Laing O'Rourke Australia Construction v H & M Engineering and Construction [2010] NSWSC 818 at [8]).
The Security of Payment Act gives very valuable, and commercially important, advantages to builders and subcontractors. At each stage of the regime for enforcement of the statutory right to progress payments, the Security of Payment Act lays down clear specifications of time and other requirements to be
observed. It is not difficult to understand that the availability of those rights should depend on strict observance of the statutory requirements that are involved in their creation."
98This is done by requiring the parties to define clearly, expressly and promptly, the issues in dispute between them (by the Payment Claim and Payment Schedule). The issues so defined are the only issues which the parties are entitled, subsequently, to agitate in their dispute and they are the only issues which the adjudicator is entitled to determine under s 22.
99Specifically, and relevantly to this case, s 20(2B) of the Act prevents a respondent from including in its adjudication response any reasons for withholding payment that were not included in the payment schedule provided to the claimant.
100In this way, the scheme of the Act envisages that a respondent should not be able to reject a payment claim, serve a payment schedule which does not disclose the reasons for withholding payment, and then disclose, for the first time, in its adjudication response, that the reasons for the rejection were founded upon a certain construction of the Contract, or upon other matters that the claimant had no prior opportunity of checking or disputing. In this regard, it is to be remembered s 14(3) requires that if the respondent to a payment claim has "any reason" for "withholding payment", it "must indicate" that reason in the payment schedule. In this way, also, the payment claim and the payment schedule should be intelligible to the adjudicator.
101Palmer J, in Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140, at [76] - [78] (adopted in Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391; (2005) 64 NSWLR 448, per Mason P, with whom Giles and Santow JJA agreed) at [27] - [31]) wrote:
"A payment claim and a payment schedule are, in many cases, given and received by parties who are experienced in the building industry and are familiar with the particular building contract, the history of construction of the project and the broad issues which have produced the dispute as to the claimant's payment claim. A payment claim and a payment schedule must be produced quickly; much that is contained therein in an abbreviated form which would be meaningless to the uninformed reader will be understood readily by the parties themselves. A payment claim and a payment schedule should not, therefore, be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.
A respondent to a payment claim cannot always content itself with cryptic or vague statements in its payment schedule as to its reasons for withholding payment on the assumption that the claimant will know what issue is sought to be raised. Sometimes the issue is so straightforward or has been so expansively agitated in prior correspondence that the briefest reference in the payment schedule will suffice to identify it clearly. More often than not, however, parties to a building dispute see the issues only from their own viewpoint: they may not be equally in possession of all of the facts and they may not equally appreciate the significance of what facts are known to them. This will be so especially where, for instance, the contract is for the construction of a dwelling house and the parties are the owner and a small builder. In such cases, the parties are liable to misunderstand the issues between them unless those issues emerge with sufficient clarity from the payment schedule read in conjunction with the payment claim.
Section 14(3) of the Act, in requiring a respondent to 'indicate' its reasons for withholding payment, does not require that a payment schedule give full particulars of those reasons. The use of the word 'indicate' rather than 'state', 'specify' or 'set out', conveys an impression that some want of precision and particularity is permissible as long as the essence of 'the reason' for withholding payment is made known sufficiently to enable the claimant to make a decision whether or not to pursue the claim and to understand the nature of the case it will have to meet in an adjudication."
102Palmer J expanded upon the pleading analogy in Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1, at [44] - [45]:
"A payment claim under the Act is, in many respects, like a Statement of Claim in litigation. In pleading a Statement of Claim, the plaintiff sets out only the facts and circumstances required to establish entitlement to the relief sought; the Statement of Claim does not attempt to negative in advance all possible defences to the claim. It is for the defendant to decide which defences to raise; the plaintiff, in a reply, answers only those defences which the defendant has pleaded.
In my opinion, a payment claim under the Act works the same way. If it purports reasonably on its face to state what s 13(2)(a) and (b) require it to state, it will have disclosed the critical elements of the claimant's claim. It is then for the respondent either to admit the claim or to decide what defences to raise."
103In Owners Strata Plan 61172 v Stratabuild Ltd [2011] NSWSC 1000, Macready As J, at [30], noted:
"Section 14(3) requires the recipient to indicate why payment in full is withheld and the reasons for doing so. The joinder of issue thus achieved sets the parameters for the matters that may be contested if an adjudication under the Act ensues...".
104In Taylor Projects Group Pty Ltd v Brick Dept Pty Ltd [2005] NSWSC 439, Einstein J, at [35], noted that:
"Although a payment schedule need not follow any particular level of formality ... it must nonetheless comply with the basic requirements." (Omitting citations)
105In Pacific General Securities Ltd v Soliman and Sons Pty Ltd [2006] NSWSC 13; (2006) 196 FLR 388, at [71], Brereton J was "inclined to accept, without deciding, that a payment schedule may 'sufficiently indicate' reasons for withholding payment by reference to reasons previously advanced in an earlier payment schedule, if appropriately worded... ".
106In Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157, at [53], Giles JA, with whom McColl and Young JJA agreed, described Brereton J's inclination as "correct", adding "as was his observation that it was not sufficient to incorporate reasons advanced in previous payment schedules, adjudication responses or otherwise so that the claimant could not know whether all or any and if so which of the grounds previously advanced were now relied on".
107The Act, then, provides for a mechanism by which an independent person, namely the Adjudicator, carries out certain identified tasks as set out in s 22 of the Act. The first statutory task, described in s 22(1)(a) of the Act, given to the adjudicator is to determine the "adjudicated amount"; that is to say, "the amount of the progress payment (if any) to be paid by the respondent to the claimant".
108This determination (which requires as a minimum determination whether the construction work the subject of the claim has been performed, and of its value) is one of the basic and essential requirements of validity of a determination: Pacific General Securities Ltd v Soliman & Sons Pty Ltd at [98]; Eastland Truss & Timber Pty Limited v Matthew John Byrnes t/as Qualibuilt Constructions [2014] NSWSC 1461, per Bergin CJ in Eq, at [12].
109By s 22(2), the adjudicator is next commanded to "consider the following matters only": namely, the matters listed in sub-paragraphs (a) - (e). Sub-paragraph (d) identifies the Payment Schedule to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule. (Sub-section 22(2)(e) may be ignored, in this case, since there was no inspection carried out by the Adjudicator of any matter to which the claim relates.)
110In Timwin Construction v Façade Innovations [2005] NSWSC 548, McDougall J, at [39] to [40], wrote:
"There has not been any decision to my knowledge elaborating the requirement of good faith to which Hodgson JA pointed in Brodyn [Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor [2004] NSWCA 394]. Clearly, I think, his Honour was not referring to dishonesty or its opposite. I think he was suggesting that, as is well understood in the administrative law context, there must be an effort to understand and deal with the issues in the discharge of the statutory function: see, for example, the speech of Lord Sumner in Roberts v Hopwood [1925] AC 578, 603, where his Lordship said that a requirement to act in good faith must mean that the board 'are putting their minds to the comprehension and their wills to the discharge of their duty to the public, whose money and locality which they administer.'
That construction of the requirement of good faith is supported by the provisions of s 22(2), requiring an adjudicator to 'consider' certain matters. A requirement to consider, or take into consideration, is equivalent to a requirement to have regard to something: see Zhang v Canterbury City Council [2001] NSWCA 167; (2001) 51 NSWLR 589 at 602 (Spigelman CJ, with whom Meagher and Beazley JJA agreed).
As his Honour emphasised, the requirement to 'have regard to' something requires the giving of weight to the specified considerations as a fundamental element in the determination, or to take them into account as the focal points by reference to which the relevant decision is to be made. His Honour relied on the tests expounded in R v Hunt; ex parte Sean Investments Pty Ltd [1979] HCA 32; (1979) 180 CLR 322 (Mason J) and in Evans v Marmont [1997] NSWSC 331; (1997) 42 NSWLR 70, 79-80 (Gleeson CJ and McLelland CJ in Eq)."
111His Honour returned to the topic in Laing O'Rourke Australia Construction Pty Ltd v H&M Engineering & Construction Pty Ltd [2010] NSWSC 818. After referring to his earlier decision of Timwin Construction v Façade Innovations, his Honour wrote, at [31] - [39]:
"Shortly after I decided Timwin, Brereton J considered the obligation of good faith in Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd [2005] NSWSC 1129. In a detailed review of the authorities from [66] to [109], his Honour identified what he described as a narrow view and a broader view of good faith. His Honour explained the narrow view, at [80], as 'focussing on whether objectively the exercise of power could be regarded as honestly referrable to the purpose for which the power was conferred, and excluding from its ambit the reasoning process leading to the decision'. His Honour identified the broader view, at [87] and other paragraphs, as including recklessness or caprice in the exercise of the power, although falling short of a wilful and deliberate failure to exercise, or to attempt to exercise, the power. For the reasons given at [111] to [116], his Honour concluded at [110] and [117], that the requirement of good faith required more than honesty. In particular, it required faithfulness to the obligation and a conscientious attempt to perform it (at [117]), and absence of recklessness or caprice [at 110], [117]).
The defendant appealed. The appeal was dismissed (Halkat Electrical Contractors Pty Ltd v Holwood Holdings Pty Ltd [2007] NSWCA 32). Nonetheless, Giles JA (with whom Santow and Tobias JJA agreed) referred at [26] to what Brereton J had said. His Honour did not think that it was necessary to embark on 'an exegesis of the reference in Brodyn ... to a bona fide attempt to exercise the statutory power'. That was because, as his Honour said at [27], 'the adjudicator simply did not perform the task required by the Act', and thus did not exercise his power in good faith.
The Court of Appeal returned to the topic of good faith in Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd [2009] NSWCA 157. It appeared that the appellant in that case had submitted that the Court of Appeal did not 'fully endorse' the broader approach to good faith that Brereton J had identified in Holmwood. At [114], Giles JA (with whom McColl and Young JJA agreed) said that the Court 'did not endorse it at all'.
I do not think that it is necessary to say more than that, in the words of Lord Sumner in Roberts v Hopwood [1925] AC 578 at 604 (cited by me in Timwin at [38]), for administrative bodies to act in good faith, they must put 'their minds to the comprehension and their wills to the discharge of their duty'. As I said at [39] and [40], that view of the content of the obligation of good faith was supported by the requirement to 'consider' various matters set out in s 22(2) of the Act. It follows that the obligation of good faith requires at least that adjudicators should turn their minds to, grapple with and form a view on all matters that they are required to 'consider'.
...
I looked at the obligation to 'consider' in Timwin, in the paragraphs quoted... above. It is, however, necessary to say a little more about the content of that obligation in the context of the Act.
As a matter of plain English, the obligation to 'consider' something requires that it be given attention, or looked at on its merits (see, for example, the Australian Oxford Dictionary, Second Edition, 2004). Thus, in Tickner v Chapman [1995] FCA 1726; (1995) 57 FCR 451, Black CJ, speaking of a statutory obligation on a minister of the Crown to consider representations made to him, said at 464 that 'the consideration of a representation involves an active intellectual process directed at that representation'. In the same case, Burchett J said at 476 that the obligation required 'the Minister... to apply his own mind to the issues raised by [the representations]', which involved obtaining 'an understanding of the facts and circumstances set out in them, and of the contentions they urged based on those facts and circumstances'. Kiefel J said at 495 that the obligation 'requires that the Minister have regard to what is said in the representations, to bring his mind to bear upon the facts stated in them and the arguments or opinions put forward and to appreciate who is making them'.
In my view, the obligation to consider various matters imposed by s 22(2) of the Act should be read in the same way: namely, as requiring an active process of intellectual engagement. It may be thought that this imposes a substantial burden on adjudicators. That may be so; but there are at least two reasons why, even if that is correct, it does not justify reading down the statutory obligation to 'consider'. The first is that adjudicators are not forced to accept nomination. They may decline nomination; or they may accept only on condition that they are given some longer period of time than ten working days to produce their determination. The second reason is that the outcome of the adjudicator's consideration may have very significant consequences. In this case, the three delay claims total, in round figures, $7.5 million - a little under 75% of the total of the payment claim. Having regard both to the limited ability for adjudicators' determinations to be reviewed and to the nature of the estoppels that they create, the parties to an adjudication are entitled to have the adjudicator's consideration, in the sense that I have explained, of the case that each of them brings."
112In Pacific General Securities Ltd v Soliman & Sons Pty Ltd, Brereton J, at [82], wrote:
"I therefore respectfully agree with the view tentatively expressed by Hodgson JA in Hargreaves [Coordinated Construction Co Pty Ltd v J M Hargreaves (NSW) Pty Ltd [2005] NSWCA 228]: the adjudicator's duty is to come to a view as to what is properly payable, on what the adjudicator considers to be the true construction of the contract and the Act and the true merits of the claim, and while the adjudicator may readily find in favour of the claimant on the merits of the claim in the absence of a payment schedule or adjudication response, or if no relevant material is advanced by the respondent, the absence of such material does not entitle the adjudicator simply to award the amount of the claim without addressing its merits, which as a minimum will involve determining whether the construction work identified in the payment claim has been carried out, and what is its value."
113McDougall J recently expressed similar sentiments in Cornerstone Danks Street v Parkview Constructions [2014] NSWSC 866, at [30], writing that:
"In performing the obligation to determine (among other things) the amount of the progress payment (if any) to be paid, the adjudicator must consider the disputes and, in a rational and considered way, deal with them. It is then necessary for him or her to reduce his or her reasons for doing so to writing, along with the determination itself".
114In this case, what is alleged by the Council is that the Adjudicator did not exercise his function under s 22 of the Act in good faith.
115In Clyde Bergemann v Varley Power [2011] NSWSC 1039, McDougall J, after referring to his earlier decisions on the question of good faith, added, at [83] - [84]:
"The extent of compliance with the good faith obligation is not to be assessed in a vacuum (and nor is the extent of compliance with the requirement to afford natural justice, subject to the scheme of the Act). Particularly where the disputes are substantial and complex, and where there are thousands of pages of material put before an adjudicator, it is in my view incumbent on the parties to identify with precision all reasons that are open to them (based on the payment claim and payment schedule) in support of or opposition to each element of the claim, and to direct the adjudicator's attention to the relevant parts of the material given to him or her. It is not sufficient to put that material before the adjudicator, accompanied by lengthy but diffuse submissions, and to leave it to him or her to come to the right result for the right reasons based on every detail that may be gleaned from whatever is the relevant material.
On the contrary, in my view, both the requirement to consider in good faith and the requirement to afford natural justice must take into account the magnitude of the task and the way that the parties have put the task before the adjudicator. In particular, it is inappropriate for a party, who has not done what it can to clarify the dispute and guide the adjudicator to the relevant material, to complain, nonetheless, that there was material, that might have borne on the adjudicator's conclusions, that could have led to a different result."
116In Northbuild Construction P/L v Central Interior Linings P/L [2011] QCA 22; [2012] 1 Qd R 525, White JA, at [107], wrote:
"...It is the manner in which the adjudicator dealt with the claim for variations (including the delay claims) and the valuation of the work done under the contract which Northbuild contended demonstrated that he did not approach and carry out his task in good faith, or, 'have regard to' its submissions. The primary Judge, after quoting extensively from the judgment of Hodgson JA in Brodyn, concluded in a passage about which there can be no criticism:
In summary, what is required of an adjudicator is that he or she make a genuine attempt to understand and apply the relevant contract and to exercise the power in accordance with the Act.
His Honour admonished that in assessing the decision of an adjudicator where there is a claim of want of bona fides:
It does not assist in the determination of such a question to simply cherry pick particular paragraphs from a lengthy decision and, by pointing at them alone, attempt to show an absence of bona fides.
His Honour adopted the approach described by Barrett J in Shellbridge Pty Ltd v Rider Hunt Sydney Pty Ltd and by Hodgson JA in John Holland Pty Ltd v Roads & Traffic Authority of New South Wales. In Shellbridge, Barrett J said:
... the whole of the content and tenor of an adjudication may be called in aid in deciding whether particular submissions were considered in the way the Act requires. Inference is permissible. The question is not to be approached solely by reference to the presence or absence of explicit statements referring expressly to the submissions.
In John Holland, Hodgson JA noted:
The relevant requirement of s 22(2) [s 26 of the Payments Act] is that the adjudicator consider the provisions of the Act, the provisions of the contract and submissions duly made. If an adjudicator does consider the provisions of the Act and the contract which he or she believes to be relevant, and considers those of the submissions that he or she believes to have been duly made, I do not think an accidental or erroneous omission to consider a particular provision of the Act or a particular provision of the contract, or a particular submission, could either wholly invalidate a determination, or invalidate it as regards any part affected by the omission. One could express this by saying that such an accidental or erroneous omission does not amount to a failure to comply with s 22(2), so long as the specified classes of considerations are addressed ...
Although not referred to by the primary Judge, in John Holland Basten JA noted, firmly, that authority to decide the scope of the right conferred by the Act or, if relevant, the scope of the right under the construction contract rests conclusively with the adjudicator."
117The Adjudicator necessarily determines whether a respondent's submissions are within the parameters of the payment schedule to which they relate. It is only if they are that the Adjudicator would regard those submissions as having been "duly made", that is to say, relevantly to this case, made in support of a reason for withholding payment which has been indicated in the payment schedule in accordance with s 14(3).
118It is also for the adjudicator to determine, otherwise, whether submissions are "duly made": Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229, per Hodgson JA, at [24] - [26]; John Holland Pty Ltd v Roads and Traffic Authority of New South Wales [2007] NSWCA 19, per Hodgson JA (with whom Beazley JA agreed), at [63] and per Basten JA, at [71].
119In Downer Construction (Australia) Pty Ltd v Energy Australia [2007] NSWCA 49; (2007) 69 NSWLR 72, Giles JA (with whom Santow and Tobias JJA agreed) wrote, at [88]:
"There is good reason for leaving determination of the scope and nature of the payment claim to the adjudicator, apart from the purpose of the Act earlier mentioned. The scope and nature of the payment claim will often be, and in the present case was, open to be elucidated and evaluated with the benefit of the adjudicator's specialised knowledge."
120In Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd, McDougall J wrote, at [220]:
"... Whether or not a submission is 'duly made' depends on an assessment of the issues raised by a payment claim and payment schedule, and a value judgment as to whether a particular submission falls within the ambit of the payment claim or payment schedule, properly understood. That is, specifically, the sort of matter where expert evaluation, and an understanding of the way in which the parties have dealt with each other, will be of assistance."
121Also see, Clyde Bergemann v Varley Power, per McDougall J, at [13].
122However, in State Water Corporation v Civil Team Engineering Pty Ltd [2013] NSWSC 1879, Sackar J, after referring to the authorities on this topic, added, at [54] - [57]:
"In the present case, it is obvious that State Water's submissions in its adjudication response included reasons for non-payment which were not, by any stretch of the imagination, included in its three-sentence payment schedule (see [14] above). To my understanding, an unqualified acceptance of State Water's submission would lead to the position that an adjudicator could, wittingly or unwittingly, insulate from review his or her acceptance and consideration of parties' submissions, by formulaically including in his or her adjudication determination a statement to the effect that the submissions were valid, or duly made, for the purpose of the relevant provisions in the Act. In other words, I understand State Water's submission to have the effect of placing the adjudicator's exercise of determining whether or not submissions were "duly made", completely beyond the court's review, provided the adjudicator says he or she turned his or her mind to the question of whether the submissions were duly made.
However, the true position, which I think emerges from a more fulsome reading of the authorities, is slightly different. In Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 itself, Basten JA appeared (at [43]) to agree with Hodgson JA that it was for the adjudicator to determine whether or not a claimant's submissions were within the parameters of the payment claim to which they relate (and by analogy whether a respondent's submissions were within the parameters of the payment schedule to which they relate), and also observed that it was for the adjudicator to determine whether or not the mandatory requirements in s 13(2) of the Act had been satisfied (at [44]-[46]), and that intervention by a court where it thinks that the mandatory requirements in s 13(2) have not been met "will only be justified if the legislature has imposed an objective requirement, rather than one which the adjudicator has power to determine" (at [44]). Nonetheless, his Honour was careful to add (at [47]) that:
[47] It does not follow that the formation of a relevant opinion by an adjudicator with respect to compliance with s 13(2) will in all circumstances be beyond review. The principle stated by Latham CJ in R v Connell; Ex parte Hetton Bellbird Collieries Ltd (1994) 69 CLR 407 at 432, as applied by Gummow J in Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 at [133], was to the following effect:
If the opinion which was in fact formed was reached by taking into account irrelevant considerations or by otherwise misconstruing the terms of the relevant legislation, then it must be held that the opinion required has not been formed. In that event the basis for the exercise of power is absent, just as if it were shown that the opinion was arbitrary, capricious, irrational or not bona fide.
Thus, as noted in Brodyn, an essential element in the formulation of such an opinion is that is must be undertaken in good faith, but that is not a sufficient condition of validity.
The same, in my view, may be said about the adjudicator's opinion with respect to whether, for the purpose of s 20(2B), a respondent's submissions come within the parameters of the respondent's payment schedule."
123The method of calculation of a progress payment is primarily by reference to the terms of the construction contract: s 9(a). It is only if the contract makes no express provision for calculation that the alternative in s 9(b) applies.
124Similarly, the valuation of construction work is to be undertaken primarily by reference to the terms of the contract: s 10(1)(a). Again, it is only if the contract makes no express provision for this that the alternative in s 10(1)(b) applies. Section 10(1)(b)(iii) includes "any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount...".
125In determining the adjudication application, the adjudicator is required to consider the provisions of the construction contract under which the claimed entitlement arises (s 22(2)(b)), presumably to determine "the amount calculated in accordance with the terms of" that contract. In other words, the task requires the adjudicator to identify the contractual provisions relevant to quantification of the amount of a progress payment, to decide (where there is a contest) the proper construction of those provisions, and to apply them to the facts of the particular dispute.
126Compliance with the requirements of s 22(2) - to consider the specified matters and those matters only - is not a precondition to the existence of authority to make a decision, and non-compliance does not result in invalidity if an adjudicator either considers (only) the matters referred to in s 22(2), or bona fide addresses the requirements of s 22(2) as to what is to be considered: Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor [2004] NSWCA 394, at [56] - [57]; Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd, at [36].
127Thus, "an error of fact or law, including an error in interpretation of the Act, or of the contract, or as to what are the valid and operative terms of the contract, does not prevent a determination from being an adjudicator's determination within the meaning of the Act. Section 22(2) does require the adjudicator to consider the provisions of the Act and the provisions of the contract; but, so long as the adjudicator does this, or at least bona fide addresses the requirements of s 22(2) as to what is to be considered, an error on these matters does not render the determination invalid": Minister for Commerce (formerly Public Works & Services) v Contrax Plumbing (NSW) Pty Ltd [2005] NSWCA 142, per Hodgson JA, at [49].
128It has been pointed out that "there is a distinction between the primary function of determining the matters set out in [s 22(1) of the Act] and the obligation to justify that determination in writing, and with reasons, being the obligation imposed by [s 22(3) of the Act]": Cornerstone Danks Street v Parkview Constructions [2014] NSWSC 866, per McDougall J, at [29].
129The reasons should show that the adjudicator has turned his, or her, mind to the dispute and has addressed the issues raised by the parties in support of, and in opposition to, the Payment Claim. He or she should analyse each of the documents to the best of his, or her, ability for the purposes of identifying the claims made by the plaintiff in its response to the adjudication application.
130The Act does not state any requirement regarding the length, detail, or elaboration of the reasons. Sackar J, in State Water Corporation v Civil Team Engineering Pty Ltd, wrote, at [10]:
"The strict timeframes imposed by the Act, and the complexity of some of the cases, means adjudicators are often required to make their determinations in an intense, 'pressure cooker environment', and therefore considerable latitude should, in my view, be afforded to an adjudicator as to the manner and form of the determination (Shell Refining (Australia) Pty Ltd v AJ Mayr Engineering Pty Ltd [2006] NSWSC 94 at [25] and [26] per Bergin J, as her Honour then was)."
131The decision of the adjudicator is subject to the supervisory jurisdiction of the court: Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd. However, the grounds on which an adjudication under the Act can be reviewed are limited. McDougall J summarised these grounds in Timwin Construction Pty Ltd v Façade Innovations Pty Ltd, at [1], where his Honour, referring to Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Anor, said that judicial review was available in the following circumstances:
"(a) Where an adjudicator fails to comply with the basic and essential requirements prescribed in the Act for there to be a valid determination;
(b) Where the adjudication determination does not amount to an attempt in good faith to exercise the relevant power, having regard to the subject matter of the legislation;
(c) Where a party has been denied natural justice (for which purpose the narrow statutory scheme limits the extent of natural justice required); and
(d) Where the adjudication determination was procured by fraud in which the adjudicator was complicit."